Why this infatuation with 1800 MHz band

Written by DPS Seth | Updated: Nov 14 2013, 08:40am hrs
Two attempts have been made to auction spectrum in the 1800 MHz band. Both have failed despite reduction of base price in the second attempt. The government is readying itself for a third attempt by further reducing the base price substantially. Will the Department of Telecommunications (DoT) be third-time lucky

There are several issues with the 1800 MHz band. First, the spectrum proposed for auction is largely fragmented and, therefore, can at best be used for 2G services. Is there a demand for more spectrum for 2G services Operators such as Tata Teleservices who do not have spectrum for vanilla mobile services in Delhi need it. There are a few other areas where there may be similar demand.

However, with stagnating growth in mobile connections, there seems to be little scope for across-the-board demand for spectrum that is suitable essentially only for 2G services. Another factor to consider is the fact that the spectrum user charge (SUC) as a percentage of revenue increases with quantum of spectrum held. With diminishing or stagnant revenues, operators are not likely to want to accumulate any more spectrum. The picture may change if Trais recommendation for flat rate SUC is accepted despite a telecom panels rejection of this recommendation. As for new operators coming in, it would indeed be a surprise if any one would want to invest in 2G market in India, which is already crowded and growth is stagnanting.

Why a scramble for licences happened in 2008 is well known and cannot be expected to repeat. If there were a contiguous 5 MHz slot available, one could have expected some interest and even the possibility of FDI. The recent print media reports on objections from the defence ministry further narrows down the availability of contiguous spectrum.

The government needs more revenues and FDI from spectrum auction but, clearly, going the 1800 MHz band auction route is not the solution. What are the alternatives

For an auction to succeed, the offered commodity has to be what the market wants. In the case of spectrum, it has to be of a type where services desired by the customer can be offered. It has to bear a price tag that is acceptable in the market. It has to be internationally harmonised to ensure that the ecosystem favours inexpensive customer end-devices besides low-cost equipment to the operator. Let us examine various spectrum bands against these criteria.

In terms of consumer demand, it is evident that interest in vanilla mobile services is now not on an increasing trajectory and the rural demand can be met by the existing spectrum allocation. Quality of Service (QoS) improvement can be one argument. However, the improvement in QoS can be achieved either by limited quantities of 2G spectrum or installation of more base stations or transferring heavy users to 3G services, provided 3G services operate efficiently and are competitively priced.

There has been a rising trend in data traffic on mobile services besides a substantially increased sale of smartphones whose capability is not giving full benefits to users due to inadequate and expensive broadband mobile services. Under the circumstances, it is reasonable to presume that the demand is now shifting towards mobile broadband. Besides, the Telecom Policy 2012 promises availability of broadband services at 2 Mbps rate at reasonable costs on demand by mid-2015. This objective is indeed what is desirable if the country has to benefit truly from the telecom revolution started by 2G services in the last decade. Two technologies are available for meeting this requirementLTE (Long Term Evolution) and 3G.

Let us now examine the ecosystems of these two technologies and the bands in which their ecosystems are strong.

So far as LTE is concerned, currently it is being offered in India in the 2300 MHz band where the ecosystem is poor due to lack of harmonisation. Only one pan-India licensee exists, which implies poor competition. Service has been launched in limited locations and by other than pan-India licensee. Besides, no additional spectrum is available in this band. An ecosystem for LTE is developing in the 1800 MHz band but is far from mature. Further, for efficient operation, LTE requires substantial bandwidth, which is not available in this band. In fact, 700, 800 and 900 MHz bands are possible candidates in the future for LTE services from the viewpoint of ecosystem and bandwidth. At the present juncture, harmonisation, at least in the Asia Pacific region (minus China), is on the horizon in the 700 MHz band. However, currently, not a single operator exists in the 700 MHz band and it will take a long time (3 to 5 years) before the 700 MHz band LTE services take off.

Besides, the US and Europe use different band plan and China is going the TDD way and, therefore, it will take even longer for the LTE ecosystem in this band to reach the level of maturity, which, say, 3G has in the 2100 MHz band. Thus, while the 700 MHz band is likely to become attractive, it needs a long time-frame of over 5 years for maturing. In the other two bands, adequate bandwidth is not available.

This leaves us with 3G services, which are now operating in 89 countries offered by 211 operators. In India, it is operating in the 2100 MHz band with no pan-India operator and only one 5 MHz slot in several areas. It has been reported that at the present rate of growth, the capacity of 3G service providers will get exhausted by mid-2015.

So far as the ecosystem for 3G services is concerned, it is poor in the 1800 MHz band where, in any case, we do not have much spectrum available to enable 3G services extensively. The 900 MHz band is a very promising band from harmonisation and ecosystem point of view but its availability carries a question mark. The problem will become even more complex if the entire 1800 MHz spectrum proposed for auction is actually auctioned. From the press reports, it appears that the Department of Defence has already rejected a suggestion of DoT to leave 40 MHz of their share of spectrum in the 1800 MHz band to enable spectrum refarming in the 900 MHz band.

The band which is best harmonised practically across the globe is the 2100 MHz band. Its harmonisation for 3G services is even better than that of 2G services in the 900 MHz band which resulted in the thumping success of 2G services. As for the availability of spectrum in this 2100 MHz band, a lot has been written in the media about a proposal for swap of 15 MHz frequencies in the 1900 MHz band with the Department of Defence to achieve 3 more 5 MHz slots in the 2100 MHz band for 3G services in India. The virtues of such a swap have been accepted by one and all as a win-win situation for DoT, defence, consumers and the operators. With the availability and immediate auction of these 3 or 4 slots of 5 MHz each, DoT can get back on track for providing broadband services in the country, the operators can boost their revenues and improve the financial health of the sector, the government can garner $5-8 billion, and consumers can fully utilise their smartphones with cheaper 3G services through increased pan-India competition. The complicated legal battle for 3G roaming can also be sorted out.

In conclusion, DoT will do well to give up its infatuation with the 1800 MHz band and put all its energies and resources in meeting the requirements of defence before they accept the proposed frequency swap and make available 15 MHz in 2100 MHz for immediate auction.

The author is former member, Trai, former member, Telecom Commission, and former CMD, BSNL